{"id":1247,"date":"2013-04-12T17:00:00","date_gmt":"2013-04-12T17:00:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2013\/04\/12\/viewpoint-the-fomc-may-be-ready-to-reduce-the-pace-of-purchases\/"},"modified":"2013-04-12T17:00:00","modified_gmt":"2013-04-12T17:00:00","slug":"viewpoint-the-fomc-may-be-ready-to-reduce-the-pace-of-purchases","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-the-fomc-may-be-ready-to-reduce-the-pace-of-purchases\/","title":{"rendered":"Viewpoint: The FOMC may be ready to reduce the pace of purchases"},"content":{"rendered":"

<\/span><\/span>The FOMC minutes prepare a reduction in the pace of asset purchases in the second half of the year. The slower pace of purchases may be accompanied by indications that the securities held in the Fed\u2019s portfolio could be held to maturity, ..\u2026<\/p>\n

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For professional investors and advisers only<\/strong><\/p>\n

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keeping the Fed\u2019s balance sheet at its peak for longer than expected and avoiding potentially market disruptive sales.
– The key points of the March FOMC meeting revolved around the asset purchase programme, which has become the Fed\u2019s main policy instrument. The message is in line with our expectations: purchases will continue at their current pace, but conditions are taking shape that could allow a reduction in the pace of purchases in the second half of the year, and the subsequent termination of the programme towards the end of 2013.<\/div>\n
– As regards the economic outlook, the Committee acknowledged a return to moderate growth (some also noted that downside risks may have diminished), despite fiscal tightening, especially severe in the short term. Recent data on private employment and the unemployment rate indicate some improvement in labour market conditions. Meeting participants, however, are not yet confident that the improvement will be sustained, and feel it is appropriate to monitor the development of a wide range of indicators to gauge labour market conditions.<\/div>\n
– For what concerns monetary policy instruments, the general consensus is that the purchase programme is effective and that its benefits continue to exceed its costs. Most participants believe that the effectiveness of the purchases has not waned, but is in fact increasing, thanks to the easing of credit conditions. However, some participants remained sceptical on the efficacy of the purchases. A wide range of opinions were voiced when taking on the aspect of the cost of the purchases, although there is consensus on the main risks tied to a continued increase in the size of the Fed\u2019s balance sheet. Some of these risks could be contained by the decision to hold the securities purchased (MBS especially) to maturity, in order to limit the consequences in terms of market functioning and of potential losses charged to the central bank\u2019s balance sheet.<\/div>\n
– In light of the debate over costs and benefits, the Committee discussed the appropriate path for the programme in the future. \u201cA few\u201d participants already consider the costs of the purchases as probably outweighing the benefits, and would like to end them relatively soon. This is a minority position. \u201cA few others\u201d see risks as increasing fairly quickly, and judge that the pace of purchases should be reduced before long. \u201cMany\u201d participants, including the latter, concerned about increasing risks, agree on the fact that the \u201ccontinued solid improvement in the outlook for the labour market could prompt the Committee to slow the pace of purchases beginning at some point over the next several meetings\u201d; \u201ca few\u201d participants, on the other hand, believe that the programme should probably be continued at its current pace at least until late in the year. Participants agree that any decision to reduce the pace of purchases should be based on the trend of a wide range of indicators. \u201cA couple\u201d of these participants noted that if the expected progress is not maintained, purchases could be increased back (in line with Bernanke\u2019s statements during the press conference). Lastly, there is consensus on the fact that the Committee may \u201cchange the mix of its policy tools if necessary to increase or maintain overall accommodation, including potentially adjusting its forward guidance or its balance sheet policies\u201d. This is an important point, as it could prelude to a \u201cswap\u201d between a slower pace of purchases now, and no asset sales in the future, keeping a huge balance sheet for longer. The FOMC will gauge the development of the labour market outlook by monitoring a number of variables (for instance those suggested by Yellen: change in employment, various measure of unemployment, labour flows, and growth in demand and consumption).<\/div>\n
– In conclusion, if the trends of demand and employment levels continue at their recent paces, beyond monthly volatility, we believe the FOMC may be ready to reduce the pace of purchases in the second half of the year, while staying prepared to backtrack in case of a worsening. Also, the reduction in the pace of purchases could be accompanied by assurances that the size of the balance sheet will be kept at its peak, to be reached upon conclusion of the current programme, for a longer period than presently expected by the market, through indications that the securities held in the Fed\u2019s portfolio will not be sold.<\/div>\n
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Appendix
<\/strong><\/p>\n

Analyst Certification<\/strong>
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Trading Ideas are based on the market\u2019s expectations, investors\u2019 positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and\/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and\/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.

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Source: BONDWorld – Intesa Sanpaolo \u2013 Research Department<\/p>\n","protected":false},"excerpt":{"rendered":"

The FOMC minutes prepare a reduction in the pace of asset purchases in the second half of the year. The slower pace of purchases may be accompanied by indications that the securities held in the Fed\u2019s portfolio could be held to maturity, ..\u2026  <\/p>\n","protected":false},"author":2,"featured_media":3455,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"telegram_tosend":false,"telegram_tosend_message":"","telegram_tosend_target":0,"footnotes":"","_wpscp_schedule_draft_date":"","_wpscp_schedule_republish_date":"","_wpscppro_advance_schedule":false,"_wpscppro_advance_schedule_date":"","_wpscppro_dont_share_socialmedia":false,"_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_google_business_share_type":"","_selected_social_profile":[],"_wpsp_enable_custom_social_template":false,"_wpsp_social_scheduling":{"enabled":false,"datetime":null,"platforms":[],"status":"template_only","dateOption":"today","timeOption":"now","customDays":"","customHours":"","customDate":"","customTime":"","schedulingType":"absolute"},"_wpsp_active_default_template":true},"categories":[50],"tags":[],"class_list":["post-1247","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-weekly-analysis"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":6}},"_links":{"self":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1247","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/comments?post=1247"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1247\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media\/3455"}],"wp:attachment":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media?parent=1247"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/categories?post=1247"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/tags?post=1247"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}